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Mass layoffs hit OnLive, company assets sold

OnLive, the cloud-based streaming media company that many believed was the future of video games, reportedly laid off virtually all of its employees Friday, raising questions about its future.

The OnLive service is still functioning at present, and company spokespersons say that's not going to change, but some insiders say a new company is being planned to rise from OnLive's ashes.

UPDATE: Those insiders were right. In a statement from OnLive:

"We can now confirm that the assets of OnLive, Inc. have been acquired into a newly-formed company and is backed by substantial funding, and which will continue to operate the OnLive Game and Desktop services, as well as support all of OnLive's apps and devices, as well as game, productivity and enterprise partnerships. The new company is hiring a large percentage of OnLive, Inc.'s staff across all departments and plans to continue to hire substantially more people, including OnLive employees. All previously announced products and services, including those in the works, will continue and there is no expected interruption of any OnLive services."

"We apologize that we were unable to comment on this transaction until it completed, and were limited to reporting on news related to OnLive's businesses. Now that the transaction is complete, we are able to make this statement."

Original story follows:

The ax fell this morning at 10 am PST. Employees were summoned to an all-hands meeting, where they were informed they were all being laid off. While some workers were not surprised by the announcement, others were said to be blindsided.

Brian Fargo, CEO of InXile Entertainment, first mentioned the layoffs in a tweet detailing a letter he was forwarded by an OnLive staffer.

"OnLive as an entity will no longer exist," it reads. "Unfortunately, my job and everyone else's was included. A new company will be formed and the management of the company will be in contact with you about the current initiatives in place, including the titles that will remain on the service."

Company founder Ron Perlman has actively been seeking funding for the company throughout Silicon Valley and looking for a buyer. Those apparently unsuccessful efforts resulted in Friday's layoffs.

Insiders say Sony's recent purchase of the competing Gaikai service did not have a direct impact on OnLive and neither hastened, nor slowed down the decision to lay off staff. OnLive officials did believe it validated their business model, however.

"Our policy has always been to never comment on rumors, regardless of what they are," said spokesperson Jane Anderson. "We have some major product announcements coming in the next few weeks … but the only news we have today is the Vizio Co Star [a Google TV device put out by the television company]."

"I have no comment on the news other than to say the OnLive service is not shutting down," he told Polygon.

Other services, like the recently announced partnership with upcoming Android-based console Ouya, are expected to move forward as well, since OnLive had an existing Android client that fit easily into that console's operating system.

The company also declined to comment on reports that OnLive has filed an Assignment for the Benefit of Creditors, a California alternative to bankruptcy that gives financially troubled companies a certain level of protection from creditors.